US methanol bearish ahead of H2 capacity expansion in Texas

The expected startup of new methanol capacity during the second half of the year is prompting a bearish outlook for some market participants heading into the third quarter.

US capacity is set to hit 7.5 million/mt with the startup of a 1.75 million mt/year methanol plant in Beaumont, Texas. The OCI Natgasoline venture, owned jointly by OCI and G2X Energy, was slated to begin production in the July-August period, but sources have suggested startup may not happen until late Q4.

The impact on pricing may not be immediate, however, as some market participants believe the new methanol will balance the market, meaning global demand will remain the key driver on domestic prices.

H1 spot pricing meets expectations

US spot methanol prices averaged 102.95 cents/gal FOB USG through the first six months of 2017, an 89% increase from the average price of 54.41 cents/gal FOB USG during the year-ago period, per S&P Global Platts data.

The spot average was in line with expectations by market participants in late 2016 that called for pricing to remain around 100 cents/gal during H1. US exports are poised to rise with the additional capacity, with one source noting that more product will likely move to Europe and Asia once the new plant is running.

US exports of methanol reached 430,587 mt during the first four months of 2017, according to the most recent US International Trade Commission data. US exports continue on a record pace in 2017, possibly surpassing the 1.1 million mt mark in 2016, per ITC data. However, exports through April were 12.6% lower than in the same period in 2016, per ITC data.

Trade flows will be an important factor, with sources indicating there will be adjustments of shipments due to increased volumes. Cargoes from Venezuela have been seen shipping to China, and at least one US buyer was heard sourcing from other regions including Asia Pacific and the Middle East.

These deals represent the “new normal,” a source said. “We will see things changing because of the change in trading behavior sourcing product from other regions,” a source said.

Trinidad production impacted

Once US production sees further gains, traditional trade flows from Trinidad and Venezuela will likely be altered, with both countries expected to look to Asia for product placement.

This change comes as Trinidad and Tobago’s Methanol Holdings Trinidad Limited has seen a decrease in methanol production due to curtailments of feedstock natural gas.

Natural gas production in Trinidad and Tobago during the first four months of 2017 reached 13,127 MMcf/d, down 987 MMcf/d — or 7 % — over the same period from 2016. Methanol production, meanwhile, reached 1,527,628 mt over the first four months of 2017, dipping 182,082 mt — or 10.8% — compared with the year-ago period. Production reached 4,655,029 mt in 2016, based on data from Trinidad and Tobago’s Ministry of Energy and Energy Industries.

Crude prices also are expected to continue to have a strong impact on methanol pricing — particularly when prices trend lower — even though the US is considered a supply-driven market, sources said.

“Price offers get influenced by energy markets,” a source said. “When the oil price comes down, the price of methanol offers come down. But that does not reflect the fundamentals.”

Methanol-to-olefins economics in Asia are expected to remain positive through the second half of the year, with a modest rise in Asian methanol prices expected late in Q3, industry sources said.

A price increase likely would be a result of turnarounds in Southeast Asia that would coincide with an increase in demand from the startup of new MTO plants.

AUTHOR BIO

Daria Campbell,
Senior pricing specialist, Americas petrochemicals

Since beginning work at S&P Global Platts in March 2017, Daria has grown into a seasoned editor, currently covering methanol, intermediates and solvents markets. She previously worked as an energy and oil research analyst at Marex Spectron and Axelrod Energy Projects. At Axelrod, her duties included researching, writing and editing a monthly report for clients that focused on global fuel oil and feedstock markets. She’s also focused on other aspects of energy markets, including extraction costs, production patterns, supply chain, trade flows and price formation.

After a strong start to 2017, key petrochemicals markets in the Americas enter the second half of the year with subdued expectations amid sub-$50/barrel oil, renewed political instability in key economies and capacity expansions in the US Gulf Coast region that stand to impact supply/demand balances.

This report highlights the key themes that stand to shape petrochemical markets in the Americas during the second half of 2017.